European finance ministers reach second Greek rescue deal

02/20/2012 11:21 pm EST


Jim Jubak

Founder and Editor,

Reuters is reporting tonight that European finance ministers have reached a deal on a second, 130-billion-euro Greek rescue package. The deal, Reuters reports, would cut Greece’s debt to 121% of GDP by 2020. That’s close to the original goal of 120%.

It’s not clear at this moment—11 p.m. New York time on Monday night—how the deal gets to that number in light of continued deterioration of the Greek economy.

The deal will enable Greece to go ahead with a bond swap with private holders of Greek debt that will reduce Greek debt by about 100 billion euros. Bondholders will take a net present value loss of about 70% on their Greek bonds. The swap will enable Greece to avoid a default that loomed in March.

Also uncertain at this time is what mechanism the EuroZone countries will impose on Greece to monitor or control Greek spending of the rescue money. Proposals in recent days have ranged from more oversight to a European commissioner who would take over Greek finances.

I’d see the deal as a victory for German Chancellor Angela Merkel who managed to deliver a one-stage “solution” despite increasing opposition from hardline politicians in the Netherlands, Finland, and inside her own party.

The next stage is hammering out a text that will contain some of the critical details for release tomorrow.

And then it's back to national parliaments for ratification and then on to a March 1 summit of European leaders where the treaty would be formally approved.

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